Prepayment of Property Taxes

With the new tax bill that has recently been passed, there is much discussion in the news about prepaying property taxes. Unfortunately, there are mixed comments on this topic.

Minnesota property tax assessments are not considered due until Property Tax Statement reporting is completed in March of each. Therefore, it is the opinion of many Minnesota tax professionals that prepayment of property taxes will not generate a tax deduction but is instead a deposit on future property taxes that will be applied when the tax is formally billed in March - think  of this in the same fashion as overpayments on your individual income tax return which are not deductible. In fact, Hennepin County will likely report the prepayment of property taxes as an overpayment on the 2017 taxes and will then apply this overpayment to 2018 if directed to do so.

In other states, property taxes are due when billed therefore payment on a bill received in 2017 could be deductible without question.

We have been hearing from some clients who have consulted with attorneys on this topic as well. The opinion they are hearing from these attorneys is that the new law is written in such a fashion that there is reason to take the deduction because the new provisions apply to years after 2017. However, it is possible that the attorneys referenced are not considering the points above regarding when Minnesota property taxes are actually attached to the underlying property.

Ultimately, if you do not prepay your 2018 property taxes you have no chance of taking the deduction. No future decision could be made.

If you itemize deductions, are not subject to the alternative minimum tax, and do prepay your 2018 property taxes the additional property tax paid could be picked up as a deduction on your 2017 tax filing. However, the IRS could deny the additional property tax deduction if it is deemed a deposit.

If you do prepay, you would have the option to make the decision to take the deduction when you return is being filed.

Hopefully there would be more clarity on this topic at that point verses the uncertainty that exists now.

Finally, pre-payment of 2018 property taxes should only be considered if personal cash flows permit (cash is available to make payment).

We understand that this communication is not a definitive position on this topic, however hopefully this information helps you make a decision on whether or not to prepay your 2018 property taxes.

Feel free to call our office questions.